Everyday Cheapskate: Three money mistakes to avoid

I’m going to guess you’ve made a financial mistake or two in your life. Who hasn’t? For some of us, it was more than an occasional late fee or random urge to overspend that brought us to our financial knees. But I’m not talking about the kind of blunders that got us into trouble — we could list those in our sleep. Instead, I want to focus on the mistakes people make while they’re working their way back to financial health. Avoid these goofs to make 2014 a year you achieve financial progress!

Mistake: Not saving. You’ve heard this plenty, and here it comes again: Jump to the front of the line — in front of your creditors — when you divvy up your paycheck. Get over feeling guilty about keeping money for yourself. You need a fat emergency fund, and the only way to build it is to pay yourself first! Stuff happens, and if you’re not financially prepared for those emergencies, you’ll keep falling back into debt.

Fix it: Put your savings on autopilot — you won’t miss what you don’t see. Arrange to have a set amount transferred from your bank account to your savings. Just do it. Commit to saving 10 percent of every paycheck. If you can’t start there, start with 2 percent. Then in a few weeks, change it to 5 percent, then 7, and so forth until you reach at least 10 percent.

Mistake: Paying for college. If you must make a choice between adequately funding your own retirement and paying for your kids’ college education, put retirement first. Contributing to college funds, going into debt by cosigning for student loans or taking out a home equity loan to cover tuition before you’ve taken care of your own future are huge blunders. The best gift you can give your kids is to make sure you won’t become a financial burden to them in your sunset years.

Fix it: Kids have far more options for funding their college educations than you have for your retirement. They’ve got scholarships, grants, financial aid, student loans, work-study programs, community colleges, the military and the not-to-be-forgotten method of working their way through college. Once your own future is secure and you’re out of debt, that’s when you’re in a position to help pay for education.

Mistake: Too much house. Add up your shelter costs (monthly mortgage payment plus taxes and insurance). Your total shouldn’t exceed 28 to 33 percent of your gross income — and that’s only if you don’t have a lot of other debt. Biting off more house than you can chew leaves you wide open to foreclosure and bankruptcy.

Fix it: Don’t let a commissioned professional talk you into buying the most house you can qualify for. Do your own research and run your own numbers to determine how much house you can afford. You need a 20-percent down payment and a 30-year fixed-rate loan, with monthly payments that can easily fit within no more than 35 percent of your current gross household income. If you’re over your head in a house that is causing financial angst, maybe it’s time to sell and downsize into a home that fits you and your finances comfortably.

Mary Hunt is founder of www.DebtProofLiving.com and author of 24 books, including her 2013 release, “The Smart Woman’s Guide to Planning for Retirement.” You can email her at mary@everyday